The channel has always been intensely competitive, and there are regularly suggestions and claims of anti-competitive policies, practices and actions relating to channel restructure, pricing and supply. Investigations into those that may have infringed antitrust legislation and the referral of large mergers and acquisitions to the powers that be for approval, are commonplace. Suggestions of product dumping in the channel and volatility of pricing resulting from over- and under-supply are regularly mooted.
So what impact will the new Competition Act have when it comes into force on 1 March?
The Act prohibits agreements, business practices and conduct that damages competition in the UK. Using the Act, companies in violation can be fined as much as 10 per cent of turnover. A financial loss of this magnitude is enough to put many companies out of business or set them back years and totally undermine any investment or growth strategy.
The Act is designed to stop agreements and practices, formal and informal, which prevent, restrict or distort competition. It also sets out conditions for those that have a dominant market position - businesses with a market share upwards of 40 per cent. Provisions include imposing unfair practices, selling prices or other unfair trading conditions.
As a result, the scope of the Act, and its impact, could be substantial. The key will be how effective it is in application, the scope for active investigation and how provisions are applied.
The Act in the UK
As for UK legislation, it appears to relate to the domestic market only; so can it be applied in a market which is complex and segmented?
Market domination leads to questions of definition - a 40 per cent market share in revenue terms, or can this be product-based or volume-related? Could it be applied to accreditations, to defining a channel structure or to decisions to trade direct or indirect? And that's without considering ecommerce.
The first test cases will be crucial: the precedents resulting from them in terms of defining boundaries and the fines applied will lay the groundwork for further action.
Framework for retaliation
The Act provides a framework for those that have suffered at the hands of these practices to take matters to a different level. It should be remembered that many multinational companies are already subject to such legislation, therefore the most at risk become the large UK-based groups that will be easy targets for scrutiny.
Ultimately, it would appear there are more questions than answers, resulting in many large companies adopting a wait-and-see attitude. The hope is that common sense prevails and that the Act is used to outlaw sharp practices and not as a tool to undermine or destabilise competitors.
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